How to get a Business Loan without an Income Tax Return?￼
Income taxpayers keep a record of their earnings and the tax paid by filing an income tax return (ITR). Thus, it serves as your income proof and is considered an important document while applying for any type of loan. However, new business set-ups face difficulty in presenting ITRs, considering they are in the initial stages of business operation.
If you are planning to borrow business loans for your start-up, don’t be disappointed. You can avail of business loans even without an ITR. Read on further to know more.
7 Tips to Borrow a Business Loan without an Income Tax Return
Income tax returns play a major role in determining your business loan eligibility. However, there are ways you can secure loans without an ITR, if required. So, enlisted below are some ways to get loans in case you do not have income tax returns:
- Pledge Collateral
Availing secured business loans is one of the best ways to get credit without providing your ITR. When you pledge collateral the financial institution gets a security against the amount they lend. Hence, the probability of asking for income tax returns to sanction your loan amount reduces. So, if one wants to apply for business loans without having to produce ITRs, one should propose to pledge collateral in favour of the bank.
- Maintain a Higher Credit Score
Credit score is one of the most crucial factors in determining your loan eligibility. A higher credit score is indicative of your creditworthiness and increases your credibility as a borrower. So, when you need to avail of a business loan without ITR, make sure to have a recommendable credit score. It will present a better picture regarding your repayment history and outstanding debts to the lenders. If they find you reliable, they will approve a business loan without ITR.
- Opt for Government Business Loan Schemes
In an attempt to lend impetus to the MSME sector, the government has come up with multiple loan schemes for start-ups, small-scale businesses, new businesses, etc. These eligible businesses can avail subsidised loan schemes without pledging any collateral or producing income tax returns. Stand-up India, PSB loans, MUDRA schemes, PMEGP, etc., are some of the business loan schemes offered by the Government of India in this regard.
- Apply for Business Loan with a Co-applicant
Another effective way to secure a business loan without producing your income tax returns is by taking the help of a co-applicant. You can apply for a business loan with any of your earning family members with valid proof of income as a co-borrower or co-applicant. A joint application enhances the assurance of timely repayment to the lenders. Thus, they can approve the loan without any income tax returns.
- Go for a Personal Loan
You can also try an alternative loan option to meet the financial requirements of your business without providing ITR. A personal loan is one such viable option that can be availed since it comes with fewer eligibility requirements. However, you need to stay aware of the terms and conditions of a personal loan. You should be aware that these loans come with steeper interest rates and shorter repayment periods.
- Get All Your Documents Prepared
Small business setups borrowing business loans with the intent to run their establishment successfully can get approval without an ITR. Having all mandatory documents in place, increases your chances of securing easy approval of a business loan without producing ITR.
- Avail Business Loan from an Unofficial Lending Institution
Though not recommended, borrowing from an unofficial lender can be another way of getting loan approvals without ITR. However, the terms and conditions of such loans may differ from a reputed lending institution. If you are approaching such a lender, you need to be more cautious.
When Should You Opt for a Business Loan without ITR?
Income tax returns are one of the most crucial documents for getting a business loan. However, new businesses or small business ventures do not have the required income scale to file income tax. Thus, as a new business owner, you might not be able to produce income tax returns while applying for a business loan.
However, these businesses need financial assistance to fuel their establishments. A start-up business needs funds to purchase raw materials, hire a skilled workforce, install the latest equipment, and more. Applying for a business loan is the only way to fulfil these requirements.
In such a scenario, you can approach financial institutions that approve your loan application without an ITR. There are several banks, NBFCs, and MFIs that lend business loans without an ITR upon fulfilling the aforementioned criteria.
It is pertinent to note that business loans without ITR may, however, come at a higher interest rate as reliability of creditworthiness in such a circumstance is questionable. However, one can sustain and elevate one’s business with this loan amount and build a credible credit score going forward.
New business ventures need a loan to meet several expenses. Not being eligible for an income tax file at the early stages of business, they need to secure a business loan without ITR. Here are some of the expenses a start-up business needs to meet:
- For sales and marketing purposes
- To certify the business and get the necessary licences
- For arranging working capital
- To get new office space and meet other administrative expenses
- For purchasing raw materials and equipment
- Product development, prototype creation, website/app development
- Hiring a skilled team
- To hire consulting or legal services for the new venture
Which Business Organisations are Eligible for Availing Loans without an ITR?
Not everyone can apply for business loans without providing an income tax return. Here are some business organisations that are eligible to borrow loans without an ITR:
- Start-up enterprises,
- Self-employed individuals
- Cooperative societies
- Sole proprietorships
- Trusts, etc.
Income tax returns act as proof and assurance that you are tax compliant and have a decent flow of income with the ability to repay the loan on time. So, this document is essential for business owners while availing loans. However, start-up business ventures, being unable to provide a stable income proof, cannot obtain ITR. So, they can use the aforementioned tips to avail business loans without providing an ITR.
What should be my minimum income to avail business loan without ITR?
The minimum income eligibility to borrow a business loan without producing ITR varies according to the lender. However, you must have a decent turnover as an assurance of timely repayment. You should go through the eligibility requirement of the chosen lender to know the exact income amount to be eligible for a business loan.
What are the documents required to get a business loan without ITR?
Different lending institutions may ask for different documents to approve your business loan without an ITR. However, here are some of the basic documents that you need to produce:
PAN Card (of the individual, partner, or company)
Proof of Business Existence
Incorporation Certificate of the Company, etc.
Partnership deed or MOA
Current account bank statement
Shops and establishment certificate along with rent agreement, if applicable
Does every bank lend a business loan without ITR?
Not all banks approve business loan applications without an ITR. You need to have a decent credit score and repayment history to avail such loans. Only a few institutions offer business loans without ITR. So, you need to do research on those financial institutions and meet their eligibility criteria to borrow loans without ITR.
Is there any minimum ITR requirement to avail of business loans?
A higher income tax return provides a better possibility to avail of business loans. However, there’s no specification from the lender’s end about the minimum ITR requirement. Besides, start-up ventures can also apply for loans without producing an ITR.